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Deficits and the Chinese Challenge

Zachary Karabell
10/13/2009

China-USAThe dollar’s sharp drop over the past few weeks has led to considerable anxiety about the status of the US as the dominant force in the global economy. Closely related to this fear is worry about the rise of China, which is the largest creditor to a heavily indebted US government. Noting that debt can become a real liability for a superpower, Karabell recalls what happened to postwar Britain. Having supported the British for decades and become its banker and manufacturer during two wars, the US fully supplanted the British Empire at the end of World War II. By 2030–if not sooner–China is likely to surpass the US in the size of its economy. Trajectories can change, but the recent implosion of the American financial system has only accelerated China’s rise. To assume we will always be the dominant nation on the world stage is a recipe for becoming Britain.

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